Gas Taxes Are Not the Problem

Gas prices reached their highest inflation-adjusted price in history in May of 2007. The increase in prices is due to spikes in the cost of crude oil and tightness of refining capacity. Public outrage over fuel prices has frequently focused on gas taxes, despite the fact that taxes haven't gone up in nearly fifteen years. Many people blame gas taxes for the cost of fuel, but taxes are only a small part of the price of each gallon.

In the most-taxed jurisdictions (mostly in Wisconsin, New York, and Hawaii), gas taxes add up to about 55 cents per gallon. When gas prices were just above a dollar, taxes accounted for half of the price of gasoline. But with the recent spike in prices up to $3, taxes now account for only 18% of the purchase price of gasoline. This is because taxes are levied on a per-gallon basis, not as a percentage of the sale.

According to the American Road and Transportation Builders Association, the gas tax isn't a tax at all-it is a user fee. This means the public pays for a direct benefit to them in the form of road construction and improvement. The Federal Government charges 18.4 cents per gallon, a rate which has remained the same since 1993. This amount is placed into trust funds, and the money can only be spent on transportation improvements. About 85% of the money collected goes into the Highway Trust Fund, which pays for roadway improvements. Thirteen percent is deposited in the Transit Trust Fund, which supports public transit improvements and operations. The remainder supports hazardous materials transportation and environmental cleanup.

States add another gas tax onto each gallon, ranging from a low of 7.5 cents in Georgia to 32.1 cents in Wisconsin. This money allows states to pay their required 20% share of Federal transportation projects. It also goes to pay for solely state-funded projects like state highways, airport access roads, and local bridges. Local governments can add another few cents per gallon to pay for neighborhood roads and public transit.

With the increase in gasoline prices, Americans are showing no signs of cutting back on their consumption of oil. The long-term solution to the cost of gas is to reduce consumption by carpooling, riding public transit, buying fuel-efficient cars, and living closer to work and shopping. Not only do these methods reduce the cost to each consumer, they reduce demand for oil. Reducing demand will drive down the price of gasoline for everyone.

Gas taxes are the predominant source of funding for transportation projects. Reducing or eliminating gas taxes would gut the financing system in exchange for a minor short-term reduction in the price of gasoline. Without continued investment, the American transportation network will fall into continuing states of disrepair and congestion. This would erode one of America's most valuable, income-generating assets.